Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 15 - Income Taxes

Prior to our separation from PEI Group and IPO in February 2020, our U.S. operations were included in the U.S. federal consolidated and certain state and local tax returns filed by PEI Group.  We also file certain separate U.S. state and local and foreign income tax returns. For the periods prior to the separation, income tax (expense) benefit are presented in the consolidated financial statements as if we filed tax returns on a stand-alone basis. Upon separation from PEI Group, becoming a separate taxable entity and the change from carve-out financial statements to consolidated financial statements, we have remeasured certain deferred taxes. These adjustments have been recognized directly in equity.

The components of income before income tax were as follows:

	For the Years Ended December 31,
	2021		2020		2019
	(in millions)
Income before income taxes:
United States	$	424	$	511	$	300
International		6		5		1
Total income before income taxes	$	430	$	516	$	301

Significant components of income tax expense were as follows:

	For the Years Ended December 31,
	2021		2020		2019
	(in millions)
Current
United States
Federal	$	69	$	70	$	68
State		14		14		8
Foreign		1		1		—
Total current income tax expense		84		85		76
Deferred
United States
Federal		19		54		3
State		3		13		(3	)
Foreign		—		1		—
Total deferred income tax expense		22		68		—
Total income tax expense	$	106	$	153	$	76

A reconciliation of income taxes computed at the U.S. Federal statutory income tax rate of 21% for 2021, 2020 and 2019, to our income tax expense was as follows:

	For the Years Ended December 31,
	2021		2020			2019
	(in millions)
U.S. Federal income tax expense at the statutory rate	$	90	$	108		$	63
U.S. State income tax expense		15		17			2
Non-deductible expenses		—		2			6
CARES Act		—		27			—
Return to provision adjustments		1		(2	)		3
Other		—		1			2
Total income tax expense	$	106	$	153		$	76

Deferred Tax Assets and Liabilities

Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of our net deferred income tax liability were as follows:

	As of December 31,
	2021			2020
	(in millions)
Deferred tax assets
Employee benefits	$	26		$	24
Lease obligations		13			15
Inventory		9			7
Reserves		4			2
Tax losses		4			4
Tax credits		—			4
Total deferred tax assets		56			56
Valuation allowance		(6	)		(5	)
Total deferred tax assets after valuation allowance		50			51
Deferred tax liabilities
Intangible assets		(293	)		(291	)
Property, plant and equipment		(93	)		(72	)
Lease right-of-use assets		(13	)		(14	)
Other		(2	)		—
Total deferred tax liabilities		(401	)		(377	)
Net deferred tax liabilities	$	(351	)	$	(326	)

State and foreign net operating loss carryforwards, presented on a gross basis, and tax credit carryforwards were as follows:

	As of December 31,
	2021		2020
	(in millions)
State and foreign net operating loss carryforwards
Expires within 5 years	$	—	$	—
Expires after 5 years or no expiration		42		49
Total net operating loss carryforwards	$	42	$	49
Tax credit carryforwards
Expires within 5 years	$	—	$	4
Total tax credit carryforwards	$	—	$	4

Deferred tax assets related to state and foreign net operating loss carryforwards and state tax credit carryforwards are available to offset future state and foreign taxable earnings. We have provided a valuation allowance to reduce the carrying value of certain of these deferred tax assets, as we have concluded that, based on the available evidence, it is more likely than not that the deferred tax assets will not be fully realized. Valuation allowances relating to these losses were $4 million and $5 million as of December 31, 2021 and 2020, respectively. There were no material changes in valuation allowances in any of the years presented.

Uncertain Tax Positions

ASC 740 prescribes a recognition threshold of more-likely-than not to be sustained upon examination as it relates to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. Our policy is to include interest and penalties related to gross unrecognized tax benefits in income tax expense.

The following table summarizes the activity related to our gross unrecognized tax benefits:

	For the Years Ended December 31,
	2021		2020		2019
	(in millions)
Balance as of beginning of the year	$	4	$	2	$	1
Increase associated with tax positions taken during the    current year		1		2		1
Ending unrecognized tax benefits	$	5	$	4	$	2

Each year we file income tax returns in the various federal, state, local and foreign income taxing jurisdictions in which we operate. Foreign jurisdictions comprise Canada and China. Our income tax returns are subject to examination and possible challenge by the tax authorities. Although ultimate timing is uncertain, the net amount of tax liability for unrecognized tax benefits may change within the next twelve months due to changes in audit status, settlements of tax assessments and other events.

Prior to February 4, 2020, we were part of consolidated U.S. federal tax returns filed by PEI Group. Under a Tax Matters Agreement, entered into as part of our corporate reorganization prior to our IPO, PEI Group has retained responsibility for all U.S. federal tax matters for periods to and including February 4, 2020.

Taxes Paid

Taxes paid were $91 million, $76 million and $4 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Prior to our separation from PEI Group and IPO, our U.S. entities were members of a consolidated U.S. tax entity group for federal and certain state tax returns filed by the PEI Group.  For periods prior to our separation, the current U.S. federal and state tax liabilities of our U.S. entities was aggregated with the other members of the consolidated U.S. tax entity group and settled on a net basis by a related party. There was no formal tax sharing agreement. The settlement of our current U.S. federal and state taxes for the periods prior to our separation were recognized directly as a movement in Net Parent deficit.